The Fraudulent Employee – Who Pays?
Trusted employees are key assets of a business. No business owner can oversee all aspects of their business all the time. Trusted employees are needed in all aspects of a business, but particularly in the financial affairs of a business. Companies frequently give trusted employees the authority to prepare and issue cheques for ordinary course bill payments. However, who is responsible when an employee abuses this trust and fraudulently issues payments to third parties that have not delivered goods or services to the company?
This edition of The Battlefront looks at a recent court decision regarding a dispute between a company and its bank over who is liable for fraudulently issued cheques.
Bank’s have an obligation to verify identity if Payee exists
In the case of Teva Canada Ltd. v. TD Canada Trust (2017 Supreme Court of Canada), an employee prepared false cheque requisitions for entities with similar or identical names to existing suppliers of the company. In reliance of these requisitions, the accounting personnel of the company issued payment cheques totaling over $5 million during the course of the fraud. The rogue employee registered business names, opened bank accounts, deposited and then removed the funds. When the fraud was discovered, the employee was terminated but the funds could not be recovered.
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